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LUKoil Opens Siberian Oil Field Early, Hoping To Ease Effects of Sanctions

LUKoil, Russia’s second-largest oil producer, has opened a new Siberian oil field five months earlier than planned in an effort to increase production and potentially limit the impact of Western sanctions.

“The field is launched, though there are difficulties with raising financing," Lukoil’s CEO, Vagit Alekperov, said Oct. 8 at a launch ceremony at the Imilorskoye group of fields in western Siberia.

That is just what the sanctions were meant to do. The measures by the European Union and the United States, in part, forbid U.S. companies to provide technology or other expertise to Russian energy firms working to extract oil from Arctic, deep-water or shale operations, and to severely limit Russian companies’ access to Western financing.

Related: Russian Shale Boom Unlikely As Sanctions Force Another Company Out

Already three Western energy companies – ExxonMobil of the United States, Total of France and the Anglo-Dutch Shell – have suspended their participation in Russian joint ventures.

The Imilorskoye fields, which have available oil reserves of 1.4 billion barrels, originally were to have been launched in March 2015. And although these fields are in a region responsible for the world’s largest output of crude, production there has declined as drilling has depleted their oil.

Construction of infrastructure at the sites started in February and involved dozens of miles of pipelines, roads, power lines and a bridge over the Entl-Imiyagun River.

Arkady Dvorkovich, the deputy chairman of the Russian Federation Government, said Russia would need little if any help developing the fields.

“The commissioning of one of West Siberia’s major fields is a demonstration of the high professionalism of LUKoil personnel and of the high level of technologies employed by Russia’s oil industry,” Dvorkovich said. “I am sure that this is an important indicator of the competitiveness of the Russian fuel-and-energy complex.”

As for financing, Dvorkovich said LUKoil can always turn to Beijing. “We will support the [indigenous energy] companies … by working with financial institutions that resisted the temptation of imposing sanctions, most of all with the Chinese People’s Republic,” he said.

Related: When Needs Must: EC Greenlights Canadian Oil Sands Imports

Yet Alekperov acknowledged that Moscow would need to work hard to make up for Western technology that’s now been denied to Russia.

“In all these years we acquired … oil-production equipment from abroad, from the United States as well as from Europe, Japan and other countries,” Alekperov said. “Time and sufficiently serious resources will be needed for our industry to replace them.”

If Alekperov succeeds, it wouldn’t be the first time he beat the odds on behalf of LUKoil. The company suffered three straight years of declining production until last year, when Alekperov and his deputy, Leonid Fedun, restored healthy oil yields, mostly because of the importation of new technologies.

By Andy Tully of Oilprice.com

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